Do you dream of owning your own hunting land? A growing number of people do — and they’re competing for limited (and ever-shrinking) amounts of land. In spring 2016, the number of people who went hunting within the last 12 months totaled 16.61 million.
While many want hunting land for their personal use, others purchase hunting land as an investment. These investors seek to make the land more attractive to hunters. For example, strategic cutting of timber may make the land more attractive to certain species of animals. And improved hunting opportunities will make the property more attractive to future buyers.
Whether you’re looking to buy hunting land for your own use or as an investment, the first step is to figure out how you’re going to pay for it. But what’s the best way to finance your investment?
Finding hunting land loans
Not all banks offer hunting land loans. Far fewer lenders sell hunting loans than mortgage loans or auto loans, for example.
Lenders like their loans to be backed by collateral. Mortgages, for example, are collateralized with your house. If you default on a mortgage, the bank can take your house, reducing the risk for them. Loans backed by collateral tend to charge lower interest rates and more generous loan terms.
So how can you collateralize a hunting land loan?
Secured hunting land loans
Hunting land is often “raw land:” unimproved, uncivilized wilderness. Raw land has no water available and no sewer hook-ups, for example. Because of its raw state, it may be hard for the bank to sell if the borrower defaults on the loan. Large lenders or online lenders who know little about the area may be reticent to approve your loan for this reason. Securing your loan with collateral other than the land itself will greatly help your odds at getting approved for an attractive loan.
If you own your home, you may be able to use your house as collateral for a land loan. But that carries some risk, and not all banks will do it. Using your home as collateral may help you get the loan and might even get you a lower interest rate. But if you default on the loan, you will lose your home.
Your best bet is to approach regional and local lenders. If you’ve been hunting in an area and like it, research around for a local credit union or regional bank.
Look for any lenders in the area that specialize in agricultural or farming loans. If they do, they may offer hunting land loans as well. Hunting land has much in common with farming land, because both require maintenance and conservation practices.
Borrowing from an agricultural lender comes with other benefits, too. Because farmers’ incomes vary considerably from season to season, agricultural lenders often don’t require monthly payments. Many will take quarterly or yearly payments instead.
You can also use a land broker to find land and help you with the purchase. A land broker will usually charge you a percentage of the land’s price. Land agents have knowledge of local zoning regulations and they will be helpful in solving issues that come up, such as gaining access to the land.
Applying for a hunting land loan
For the most part, financing a hunting land loan has the same requirements as any loan. You’ll need to provide information about your salary, investments, and the amount of debt outstanding you have. The lender will also look at your credit score. Banks want to see a good-to-excellent credit score to approve any loan of this magnitude. That means you should be okay as long as your credit score is above 700.
With hunting land loans, lenders are taking a greater risk than they would for, say, a loan for a house. Accordingly, you’ll have to bear a larger financial burden.
It’s common for lenders to charge higher interest rates for raw land loans. They also often ask for larger-than-average down payments — potentially up to 50% of the loan. So if your hunting land costs $50,000, you could need as much as $25,000 upfront. Handling the down payment can be the most difficult hurdle of buying hunting land.
Getting pre-approved for a loan will help the buying process go smoother. Not only will you know that you can get the loan, pre-approval can also help you negotiate a better price. It’s important to note that according to federal law, most loans for over $250,000 require an appraisal that conforms to the Uniform Standards of Professional Appraisal Practice (USPAP).
To get the best loan, compare terms from several lenders. Check the annual percentage rate (APR) of interest and term length offered by each. Ask about loan origin fees and other fees. Check to see if there is any penalty for prepayment (paying the loan off quicker). And be sure to read and compare reviews on lenders you are considering.
Ready to get started researching land loans? SuperMoney can help you learn what to look for when buying land!